Slow-paying or deadbeat clients are the bane of small businesses. How are you supposed to pay your bills, much less grow your company, when the money you've worked for isn't coming in the door?
Here are some ideas on how to deal with unpaid invoices.
1. Make each client sign a contract before beginning work.
A signed contract that delineates deliverables and details how much and when you'll be paid protects both you and your client. It also makes taking legal action easier if it ever comes to that.
2. Offer incentives for paying early.
My local dentist, for example, gives 5 percent off to people who pay with cash or check on the day they receive treatment. Advertise this perk on invoices, in the client contract, or on signage if you have a physical location.
3. Encourage customers to pay by credit card or electronic bank transfer.
"Sometimes this is as easy as saying, 'How would you like to pay: by credit card or wire transfer?'" suggests Inc. columnist Jeff Haden.
4. Make a client pay significant costs upfront.
"When we work for clients, my company pays for travel costs and other fees that can sometimes be as much as or more than the payment for our work," writes serial entrepreneur Eric Holtzclaw. "To stay solvent, we must collect these out-of-pocket expenses as soon as possible."
5. Don't charge a late fee.
If the client is someone with whom you want to continue doing business a penalty isn't going to help your relationship.
"In addition, if someone isn't in a hurry to pay your bill, they probably won't be in a hurry to pay your late fee either," writes Nellie Akalp, CEO of online incorporation filing service CorpNet.com, on the FreshBooks Blog. "And a small penalty can just be written off as a cost of doing business and almost legitimizes the delay."
6. Don't delay invoicing.
Invoicing can be a bother but Akalp notes that putting it off sends the message that getting paid isn't a priority for you. Make sure to spell out when a bill needs to be paid, such as "Please pay within 21 days." This wording is important. It turns out invoices that employ the word "days" instead of "net" get paid faster and more often.
7. Show up in person.
It's pretty easy to ignore a phone call, email, or bill sent via snail mail. Why not stop by in person? Be friendly and genuinely ask your client how everything's going. Maybe there's some reason for the non-payment. If so, suggest some kind of payment plan. If not, cordially ask to settle up, which is easier to do if you use a mobile payments solution such as Square or PayPal Here.
8. Use certified mail.
If an invoice has gone unpaid for several months try sending another via certified mail, which always gets people's attention and gives you proof of receipt. Include a threatening letter written by an attorney for an even more effective punch. "Remember, though: This gambit may be too strong in some cases. You have to weigh such 'motivational' tactics against the circumstances of the late payment and the nature of your relationship with the client," writes Inc. columnist Howard Greenstein.
9. Stop working.
It can feel hard core, but stopping a project in its tracks is a remarkably effective way to open a customer's purse strings.
10. Re-evaluate your relationship with chronic late payers.
If getting paid is consistently a battle, talk to the client's bookkeeper or CEO and ask what you can do to help, such as changing the timing and frequency of your invoices or how you deliver them.
On the other hand, it may be a good time to seek out new clients who won't compromise the stability of your company.